Why T1E investor program could be right for you?
For many SME owners, fundraising is perhaps one of the most daunting tasks they ever have to deal with. With ever more choices such as crowdfunding, P2P lending and other alternative financing coming on the scene, gone are the days when business owners were entirely at the mercy of traditional high-street banks. However, this has led to another big question: is there a better alternative out there that is a perfect match for my business needs?
At Ying De, we would like to think that the T1E (Tier 1 Entrepreneur) Investor Program, although less well-known, is actually one of the most flexible funding options for SMEs currently in the market. In 2017, our Program facilitated £16 million of foreign investment into UK SMEs, as well as directly creating at least 160 new jobs employing British residents as one of the key requirements of the Program. We asked James Thomas, Head of Business Development to tell us more about the Program and why it could be the right funding option for you.
What is the T1E Investor Program and how is it regulated?
Our T1E Investor Program is based on the Tier 1 (Entrepreneur) visa issued by the UK Home Office. Established over a decade ago during the financial crisis, the Home Office visa scheme was primarily designed to help UK SMEs to raise fund by encouraging foreign investors to invest in the UK economy. Each investor must make a minimum investment of £200K in unsecured loans into the company. The money must directly create at least 2 new jobs employing British residents, and cannot be invested in property development. The company must also provide an active or passive role for the investor.
Besides helping companies directly, we’ve also worked closely with government bodies to try to make sure that as many SMEs as possible can benefit from this unique form of funding. For example, through introductions by the Business Growth Hub team in Manchester alone, our T1E Investor Program has facilitated more than £3 million funding in the last 3 years from Chinese investors into SMEs in the North West. Because it’s based on a government visa scheme, the Program must comply with some very strict regulations. For example, our legal team is certified at the highest level by OISC (Office of the Immigration Services Commissioner) and licensed by the Bar Standards Board.
Why is it perfect for SMEs? How is it better than other funding options?
Having set up our own small businesses ourselves, we know just how difficult it is for SMEs, especially after the 2008 crash, to borrow from traditional lenders like banks, let alone getting unsecured loans. What we really like about the T1E Investor Program is that not only does it offer unsecured loans and a low interest rate (typically less than 4%), SMEs can also enjoy an extra-long financial holiday of 5 years. This clearly sets the Program apart from high street banks and other lending options such as bridge funding and P2P lending, which could probably offer 24 months at the most.
It’s perfectly up to the companies themselves to decide whether they want to retain total control of the business, or give up some of the equity in exchange for funding from the investors. Also, each company can take in more than 1 investor if they wish to raise more than £200,000 in fund. For example, we’ve helped an e-commerce company in the gifting business to raise a total of £1 million from 5 investors.
Who are the typical investors?
According to data from the Home Office, China has by far been the No. 1 source country for this type of foreign investors, which is certainly the case for our platform as well. From our experience, there are basically 3 types of Chinese investors. There are entrepreneurs who already have their own businesses in China and are looking for some form of business expansion in the UK. As a value-add, their established business networks can be very attractive to those SMEs who are already looking at China in terms of sourcing, manufacturing or selling there. Then there are fresh graduates, typically from UK universities, who wish to develop their careers in the UK and are therefore highly motivated to learn. Finally, there are passive investors who, having comfortably retired, simply wish to invest in high growth SMEs here because they believe in the long-term prospects of the UK economy.
90% of our Chinese investors have a degree, with 60% at least a Master’s degree. Because of the diverse educational and industry backgrounds that range from nanotechnology to accountancy to fashion design, some SMEs do find the T1E Investor Program a great way to fill the skill gap that they otherwise would have struggled due to the higher salaries, particularly in the more specialized fields.
Is my company eligible for the Program, and what is the process like?
Our requirements are very, very simple. All that we ask is that a SME has in general at least 3 years of trading history with a stable turnover and profit. It must use the fund to create at least 2 new jobs, and be ready to provide a role for the investor. We welcome companies from virtually all industry sectors, except those related to property development.
The whole process usually takes around 6 months, but really depends on how quickly the investors and SMEs can move things along. After completing the initial due diligence, our account manager dedicated to each case will match the right SME with the right investor according to the specific requirements from both sides. We’ll arrange business meetings between both parties in the UK, via Skype, or even at our roadshow events in China. We can do this because we have our own offices in China. Unlike our competitors, we don’t outsource any capabilities at all. This means the process won’t be disjointed, and is a major reason why we’re able to reach an 80% success rate in 2017, making us the industry leader.
It might sound complicated, but perhaps it’s just that it’s still quite new to a lot of companies. If you’re curious about the Program or want to know how it’s helped other companies, just contact us for a quick chat. We’re always looking for new companies and introducers to work with.